Cartels by Another Name: Should Licensed Occupations Face Antitrust Scrutiny?

Abstract

It has been over a hundred years since George Bernard Shaw wrote that “[a]ll professions are a conspiracy against the laity.” Since then, the number of occupations and the percentage of workers subject to occupational licensing have exploded; nearly one-third of the U.S. workforce is now licensed, up from five percent in the 1950s. Through occupational licensing boards, states endow cosmetologists, veterinary doctors, medical doctors, and florists with the authority to decide who may practice their art. It cannot surprise when licensing boards comprised of competitors regulate in ways designed to raise their profits. The result for consumers is higher prices and less choice, as licensing raises wages by eighteen percent and bars competition from unlicensed workers. For African-style hair braiders, the result is either an illicit business or thousands of hours of irrelevant training imposed by a cosmetology board. For lawyers, the result is less competition from tax accountants, paralegals, and out-of-state lawyers. The Sherman Act’s great accomplishment has been to make cartels per se illegal and relatively scarce—unless the cartel is managed by a professional licensing board. Most jurisdictions consider such boards, as state creations, exempt from antitrust scrutiny by the state action doctrine, leaving would-be competitors and consumers no recourse against their cartel-like activity. We contend that the state action doctrine should not prevent antitrust suits against state licensing boards that are comprised of private competitors deputized to
regulate and to outright exclude their own competition, often with the threat of criminal sanction. At most, state action should immunize licensing boards from the per se rule and require plaintiffs to prove their cases under the rule of reason. We argue that the Fourth Circuit’s recent decision, soon to be reviewed by the Supreme Court, to uphold a Federal Trade Commission (FTC) antitrust suit against a licensing board—denying state action immunity to a licensing board and thereby creating a circuit split—was a step in the right direction but did not go far enough. The Supreme Court should take the split as an opportunity to clarify that when competitors hold the reins to their own competition, they must answer to Senator Sherman.